The Global South’s poor should not be subsidising the IMF

Today, the world is confronting a “polycrisis” – many dire crises occurring simultaneously, reinforcing and feeding into each other, that are inseparable. Global South countries are experiencing climate, hunger, energy, debt, and development crises, made worse by wars and conflicts in Ukraine, the Middle East, and elsewhere. Responses from the International Monetary Fund (IMF) and the World Bank to these crises are being scrutinised, and for good reason.

When, earlier this year, the Vatican convened a conference focused on the global debt crisis, news from Egypt offered a peek at factors behind the crisis, some of which came from Washington: Subsidised bread prices had quadrupled due to IMF pressure to cut subsidies. Likewise, in Kenya, protests erupted against an austerity plan the government had proposed in response to reforms urged by the IMF as conditions for lending.

All this is bad enough. But the IMF is needlessly making the crises even worse by forcing its most indebted borrowers to pay extra fees – surcharges (PDF). More and more countries are having to pay these unnecessary “junk fees,” as some opponents refer to them, as the debt crisis goes on.

Why are the surcharges unnecessary? First, the IMF does not need revenue from the surcharges – one of the two main rationales it puts forward to justify the policy. As the civil society organisation Latindadd recently noted, the Fund has met its precautionary balances target this year; it has enough money without needing to take more from cash-strapped countries struggling to feed their populations and respond to climate disasters.

The other justification the IMF puts forward for imposing its unfair junk fees? It claims that they discourage other countries from taking out unnecessary loans. But six additional countries are now paying surcharges over the past year, contradicting the IMF’s claims. And as people in the Global South know too well, countries do not turn to the Fund unless they absolutely have to. The prevalence of “IMF riots” in country after country – Kenya being just the latest – is proof of this.Morocco suffered a devastating earthquake last year that killed some 3,000 people and affected more than 6 million, including 380,000 “temporarily or permanently homeless” according to the Red Cross. It is also experiencing a water crisis. Certainly, Morocco can put its budget to much better use than IMF surcharges. Yet Morocco, too, is at “high risk” of soon having to pay the costly fees.

The Lowy Institute points to another reason why surcharges could worsen Morocco’s problems: “The most obvious problem with surcharges is they are procyclical – reinforcing economic downturns by further constraining fiscal space for governments during a crisis. Plenty of IMF research demonstrates the importance of countercyclical fiscal policy to combat economic crises. Imposing procyclical costs works directly against this rationale.”

Egypt’s recent experience shows what may be in store for Morocco. Egypt is one of more than 20 countries forced to pay surcharges, on an $8bn IMF loan. It is on track to pay $646m in the extra fees over the next five years, according to calculations by the US-based Center for Economic and Policy Research, based on IMF data. This year, the debt-strapped country quadrupled the price of subsidised bread, which will reportedly “affect an estimated 65 million Egyptians who rely on bread as their main food staple”. The decision, which will disproportionately affect low-income Egyptians, was driven, the prime minister says, by higher costs of ingredients – and also by conditions the IMF itself attached to its loans;  “financial austerity at the expense of low-income citizens,” as the Egypt-based Mada Masr described it.

Bread isn’t the only essential item experiencing a price hike. “The prices of around 3,000 drugs and medicines are set to increase by between 25–40 percent,” Mada Masr reports. “Several key drugs and medicines are constantly absent from pharmacy shelves, as years of dollar scarcity and inflation have made it hard for pharmaceutical companies to import raw materials.”

With these price hikes comes the prospect of social unrest. There is already discontent in Egypt due to factors such as the thousands of Sudanese refugees now in Egypt, and Israel’s assaults on Gaza and Lebanon. A 2020 academic study of the experiences of Egypt, Morocco, and Syria during the Arab Spring concludes that “rising food prices increased the pre-existing social unrest, sparking protests in Egypt, Syria and Morocco, and probably also in other MENA countries.”

Why then would the IMF insist on Egypt continuing to pay unnecessary, unfair, and counterproductive surcharges? One doesn’t need to be an economist to see how the Fund is compounding Egypt’s debt woes and harming its ability, as it is with various other countries, to achieve Sustainable Development Goals (SDGs) agreed to by all UN members in 2015 to eliminate poverty and hunger and generally ensure that people around the world can enjoy a decent standard of living while the environment is protected and climate emissions are curbed.

If Morocco begins paying IMF surcharges, it too can expect its problems to multiply and to worsen, and its chances of meeting the SDGs to diminish.

In too many countries around the world, poor and working people effectively are subsidising the IMF through surcharges, even as the IMF is pushing countries to enact unpopular austerity measures that could provoke unrest. We’ve seen this movie before, and unfortunately, things always seem to get worse before they get better. Rich countries could put a check on the IMF’s power and greed by supporting an end to the surcharge policy and by demanding that the Fund end its push for austerity amid a polycrisis that disproportionately affects the poor and working class.